The above graph shows that among my three holdings in the industry, Noble, Ensco ( ESV ), and Transocean (RIG), Noble trades at the cheapest multiple...
I expect the discrepancy between the improving industry fundamentals and still-depressed company valuation multiples to resolve some time in the coming months, and possibly violently if a short squeeze happens, which is near-impossible to predict, as I discussed in Ensco: What Needs To Happen For A Short Squeeze.
Having said that, I do not believe the current deep value valuation multiples of the three above-mentioned offshore drillers even reflect the current Brent crude oil price of $68 to $70 per barrel.
In other words, even if oil prices were to rest at current levels for a few more months, I would expect offshore driller stocks to grind higher as contracting activity accelerates.
Can This Happen Again?
Short squeezes are like the unicorns of investing. Everybody has heard of the stories. Everybody wants to see one. Unicorns sneak of up (on shorts) so softly, because their hooves make no noise. Their horns have healing qualities (for longs). They symbolize prosperity and peace. And when they appear, we all stare in awe while looking at their footsteps... on graphs.
Outstanding Shorts have NOW INCREASED from 21.69% to 24.65%
Short Interest Ratio (Days To Cover) is NOW 5.8 Days
Short Interest Ratio (Days To Cover) for Ensco was 4.365 Days in 17th Sep 2017
before the short squeeze started and went up about 20%.
Current HIGHER Short Interest would squeeze NE price EVEN HIGHER!
In closing, I will end my article with the following stock price chart, which depicts the Seadrill short squeeze in February 2016. Ouch.
Noble won $$$two new contracts this week$$$ in addition to successfully pricing an upsized $750 million of bonds, and Ensco saw such strong demand for its placement of $500 million of bonds that they doubled the size of the offering to $1 billion.
On the subject of the Bassoe Offshore report on offshore drilling, it was reported that South American rig demand could double by 2021, led by increasing demand from Brazil.